EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

The Energy Tax Aspects of a Restructuring U.S. Mall Industry

In the aftermath of a severe economic downturn and the reemergence of
General Growth Properties from bankruptcy, three huge U.S. mall developers are
currently marketing 40 shopping malls for sale. The three large mall sellers
are Westfield Group, Simon Property Group, and General Growth Properties. Some
of these malls have not had a major facilities upgrade in many years and use
far more energy than modern shopping facilities. According to the Wall Street
Journal, the four malls being sold by Simon Properties are, on average, 27
years old and haven't had a major renovation in 13 years. Those four include
Gulf View Square and Boynton Beach Mall in Florida, and Knoxville Center and
Oak Court Mall in Tennessee.

Westfield Properties is selling Downtown Plaza in Sacramento California,
Solano Mall in Milford Conn, and the Westland Mall in Hialeah, Florida.
Westfield intends to utilize $2 billion in proceeds for the redevelopment and
renovation of its remaining properties.

The Westfield Group facilities slated for upgrades include Century City in
Los Angeles, Valley Fair Mall in San Jose California and Garden State Plaza in
New Jersey.

The Section 179D EPAct Tax Opportunities

Pursuant to Section 179D of EPAct and its underlying ASHRAE (American
Society of Heating Refrigeration and Air Conditioning) building energy code,
commercial buildings are eligible for energy efficiency tax deductions of up to
$1.80 per square foot. If a building’s energy reducing investment
doesn’t qualify for the full $1.80 per square foot deduction, then
deductions are

available for any of the three major sub-systems, including:

1. Lighting

2. HVAC (Heating, Ventilation and Air Conditioning).

3. The building envelope.

Each component can qualify for up to 60 cents per square foot in EPAct tax
deductions. The building envelope is anything on the perimeter of the building
that touches the outside world including roof, walls, windows, doors, the
foundation and related insulation layers.

Alternative Energy Tax Credits and Grants

There are multiple 30% or 10% tax credits available for a variety of
alternative energy measures with varying credit termination dates. For example,
the 30% solar tax credit and 30% fuel cell credit expires January 1st 2017 and
the 10% Combined Power tax credit also expires January 1st, 2014. The 30%
closed loop and open loop biomass credit expires January 1st, 2014.

All alternative measures that are eligible for the 30% and 10% tax credits
are also eligible for equivalent cash grants for the three years staring
January 1st 2009 and ending December 31st 2011.

Energy-Efficient Lighting Provides the Best Economic Payback

Energy-efficient lighting often provides a very favorable two to three year
economic payback where EPAct tax savings is readily achievable.

Many mall tenants are national retailers or restaurants. Increasingly these
national tenants are upgrading to low wattage long life LED lighting.
Prospective mall tenants should make sure that their store lighting conforms to
the best of breed LED lighting standards for their national organization.

For new purchasers of these malls it is particularly important that the
parking garage lighting be retrofitted to energy-efficient lighting.

Many older mall parking garages have now federally banned metal halide or
T-12 lighting that uses twice the energy of today's replacement lighting.

HVAC is the Biggest Energy User

Malls are air conditioned properties and HVAC is the biggest energy user.
Typically the mall owner is responsible for common space air conditioning and
tenants are responsible for their own premises after lease commencement. With
these older malls new tenants should make certain that the HVAC supporting
their retail space is at the beginning of its life cycle and is at the highest
energy efficiency levels available. Energy-efficient chillers dedicated to
facilities less than 150,000 square feet typically qualify for the EPAct HVAC
tax incentives.

Alternative Energy Tax Incentives

Investments in roof top solar P. V. and fuel cells generate large 30% tax
credits and/or cash grants. Even REIT mall owners can reap the economic
benefits from these large tax incentives by either entering into power purchase
agreement or utilizing cash grants.

Fuel Cells

Due to their large size and HVAC energy use malls make excellent fuel cell
candidates.

Fuel cells convert chemical energy into electric energy through use of a
reactant (hydrogen fuel cells use hydrogen as a reactant) and an oxidizing
agent. Combustion is not involved in this process, making fuel cells quite
environmentally friendly.

The following table is an example of year 2011 fuel cell purchase with an
$800,000 utility rebate:

Fuel Cell Tax Planning Example:

Solar P.V.

With their large roof square footage, malls make excellent solar P.V.
candidates. Solar is currently particularly popular for shopping centers and
malls in California, Florida, and New Jersey where many of the proposed mall
sales or upgrades are now taking place. After a new owner or existing owner
retrofits the purchased mall it is the perfect time to install solar P.V.
Arguably with the level of solar installations now taking place in California
and New Jersey a mall will be at a competitive disadvantage if it can't offer
the lower electricity costs available from solar P.V. or the fuel cells
described above.

Conclusion

A major restructuring of the U.S. mall industry is now underway. Purchasers
of existing malls have to make facilities upgrades. The existing large mall
sellers have signaled that they intend to take the sales proceeds and redeploy
them into facilities upgrades. Both the mall purchasers and the seller have the
opportunity to use EPAct tax deductions, and alternative energy tax credits and
cash grants to improve the economic return on all of these required or
strategic energy reducing investments.